Westpac Housing Pulse details early signs of moderation in the housing market


Matt Hassan

Australia’s housing market is showing some early signs of a moderation, with conditions varying across the country.

The November Westpac Housing Pulse, released yesterday, details three risks confronting the outlook for housing:

  • Inflation and the potential for interest rate rises
  • Oversupply stemming from high levels of new building and an extended period of slow population growth due to closed borders; and
  • The investor market

Westpac Senior Economist, Matt Hassan, said that while the housing market remains strong overall, price momentum is slowing noticeably.

“Areas emerging from delta lockdowns are seeing a resurgence in activity but disruptions to demand and supply are making it difficult to tell how this will play out for prices.

“Conditions are also becoming more varied across markets unaffected by the latest virus disruptions, although most remain strong,” Mr Hassan said.

Mr Hassan said that while inflation is back on the radar, the near term outlook from the RBA is clear: a first rate hike in 2022 is unlikely; with a move in 2023 or 2024 more plausible.

“The bottom line is that while inflation has lifted it is not being seen as something that is likely to force the RBA into a more aggressive tightening schedule, with official rates set to remain on hold near term.”

Policy drivers are also starting to turn with macro-prudential tightening underway and shifting market expectations driving a lift in fixed rate mortgages.

“Sentiment now clearly points to moderating demand from owner occupiers due to affordability pressures, while investor activity is now clearly lifting; which presents upside potential for house prices in the near term if this continues,” Mr Hassan said.

“In terms of overall sentiment on the property market, the delta shock has been unexpectedly mild, except for a brief spike in job-loss concerns that has now more than reversed,” Mr Hassan said.

The Westpac–MI Consumer House Price Expectations Index softened slightly over the three months to November, declining 2.0%. However, at 152.7, the Index is still at very high levels by historical standards, the long run average being 124.8.

“Potential risks of oversupply stem from a combination of high levels of new building and an extended period of slow population growth due to closed borders,” Mr Hassan said.

“If higher levels of supply continue without a strong return to pre-pandemic population growth, we may see a slight oversupply emerging in 2023-24. If population-driven demand for new dwellings returns, oversupply risks look unlikely,” he said.

Westpac is forecasting price growth to moderate from an extraordinary 22% gain in 2021 to a more sedate 8% rise in 2022, tipping into a 5% correction in 2023.

Read the full report.

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